Consequently,
average rate across tenors dipped 9bps to settle at 13.1% W-o-W. Across tenors,
short-term and long-term bills received investors’ buying interest with
instruments like 6-Dec-18 (-0.8%), 27-Dec-18 (-0.9%), 18-Jul-19
(-1.1%) and 12-Sep-19 (-0.6%) enjoying the most buying interests. Thus,
average rate on short term and long-term instruments declined 0.1% and 0.2%
respectively. Within the week under review, offshore investors sell-offs on
mid-term instruments in Wednesday’s trading session outweighed buying interests
recorded on Monday and Thursday. Thus, average rate on these instruments inched
up 1bp driven by sell pressures in 21-Mar-19 (+0.5%) and 18-Apr-19
(+0.3%) instruments.

The
Apex bank in line with its liquidity control objectives conducted an Open
Market Operation (“OMO”) auction last week where it offered a total of
N450.0bn spread across 3 tenors – 105 days (N50.0bn), 182 days (N150.0bn), and
350 days (N250.0bn). The offer received tepid interest with investors bidding
for N225.1bn translating to a bid-cover ratio of 0.5x, lowest in 3 weeks.

In
related news, the Monetary Policy Committee (“MPC”) met during the week
where all the 11 members at the meeting unanimously voted to hold the Monetary
Policy Rate (“MPR”) at 14.0% as focus turned to growth and cost of
borrowing. However, despite the CBN’s renewed focus on cost of borrowing,
T-Bills rates are expected to remain elevated in a bid to reduce capital
outflows which rose to higher levels in Q3:2018 (US$17.8bn).

During
the week, the CBN will be conducting a Primary Market Auction (“PMA”) to
rollover maturing bills worth N150.6bn. The Apex bank will be offering N22.7bn,
N24.8bn and N103.1bn respectively across the 91-day, 182-day and 364-day
tenors. See below details of the upcoming auction and our expected stop rates
range:

Tenor

91-Day

182-Day

364-Day

Offer
Amount

22,727,507,000

24,802,939,000

103,071,723,000

Last
Stop Rate

10.95%

13.16%

14.45%

Expected
Stop Rate Range

11.0%-11.50%

13.2%-13.50%

14.50%-14.70%

In
the secondary market this week, we anticipate further quiet trading sessions
with bullish bias ahead of PMA as investors hold on for the PMA as well as
expected increased OMO auctions as liquidity levels remain elevated at N621.8bn
long while FAAC Inflow, OMO maturity of N443.8bn and Bond coupon payment of
Nxxbn is expected to hit the system on Thursday.

Last
week, the bonds market followed recent rhetoric, as activities remained
relatively quiet at the start of the week as investors anticipated the results
of the Bond auction as well as the MPC meeting. However, the decision of the
MPC to hold its policy rate at 14.0% sparked some buying interest on the long
end of the curve as investors who sold off in anticipation of a rate hike began
to reposition in the bonds market. Consequently, average yield on bond
instruments declined 13bps to settle at 15.1% W-o-W.

The
Debt Management Office (“DMO”) conducted a bond auction last week
offering a total of N115.0bn across the 5-Year, 7-Year and 10-Year maturities.
The offer was met with warm interest from investors as the offer received
subscription of N102.7bn (Bid-Cover ratio of 0.9x) albeit higher bid rates
while the DMO sold N39.5bn unwilling to elevate the federal government’s cost
of borrowing. Notably, marginal rates across all issued instruments increased
from the last auction – Apr-2023 (15.00% vs 15.20%), Mar-2025
(15.15% vs 15.50%), and Feb-2028 (15.32% vs 15.83%).

Please
find below more details on the bond auction results:

Bond

12.75%
FGN APR 2023

13.53%
FGN MAR 2025

13.98%
FGN FEB 2028

Auction
Date

21-Nov-18

21-Nov-18

21-Nov-18

Settlement
Date

23-Nov-18

23-Nov-18

23-Nov-18

Maturity
Date

27-Apr-23

23-Mar-25

23-Nov-28

Tenors

5-Year

7-Year

10-Year

Amount
Offered

35,000,000,000

35,000,000,000

45,000,000,000

Subscription

3,800,000,000

18,670,000,000

80,230,000,000

Amount
Allotted

1,100,000,000

4,270,000,000

34,150,000,000

Range
of Bids

15.0000%-15.7500%

13.0000%-16.5000%

13.0000%-16.6999%

Marginal
Rates

15.2000%

15.5000%

15.8300%

Bid-Cover
Ratio

0.1x

0.5x

1.8x

Allotment
Ratio

0.0x

0.1x

0.8x

This
week, we expect continued buying interest particularly on the long end of the
curve as investors continue to reposition. However, we note the lower pricing
of benchmark bonds at the last auction as a downside risk to a bullish performance.